India-SL stalemate hurt auto companies

India's diplomatic stand on Sri Lanka on human rights violations in the island nation has costed domestic vehicle manufacturers dearly.  

Companies including Tata Motors, Mahindra & Mahindra, TVS Motors, Hero Motocorp, Bajaj Auto and Maruti Suzuki for whom Sri Lanka formed one of the key export destinations are experiencing a significant slowdown in demand following series of hikes slapped on imported vehicles.

Sri Lanka raised import duty on cars to 200-350% from 120-291% on three-wheelers to 100% from 51-61% and two-wheelers to 100% from 61%. Another round of excise duty hike came into effect five months ago making vehicles further expensive.

Sri Lanka, with a gross domestic product increase of 6.3% in the quarter ended December, is one of the promising markets for automobile players. Indian auto labels have a lion's share of the Sri Lankan automotive market like for instance Bajaj Auto which had a 60% share.

The hike is a set back for newly launched Tata Nano whose price has nearly doubled from its launch price. With last week's India vote against Sri Lanka on the US-sponsored UNHRC resolution, industry leaders are fearing a knee jerk reaction perhaps resulting in another round of duty hikes.

A Tata Motors spokesperson said, "We cannot express a view, except to say that for Tata Motors, Sri Lanka was the first country, after India, starting in 1961. For the last 50 years, the company has had an uninterrupted association with Sri Lankan customers. In the last year, increase of excise and customs duties in Sri Lanka (in April and November 2012) has impacted exports of automobiles – passenger vehicles and commercial vehicles - out of India. In some cases, prices have doubled. Tata Motors too has been impacted."

From the launch price of LKR 9.25 lakh (Rs 3.8 lakh) cost of the Nano has gone upto LKR 15.50 lakh (Rs 6.63 lakh) in Sri Lanka. Similarly the Tata 207 used to cost LKR 14 lakh (Rs 5.98 lakh) but after the tax increase the price has increased to LKR 25 lakh (Rs 10.69 lakh).

"Import of Tata cars is happening but ever since the taxes were increased sales of Tata 207 and the Tata Nano have gone down substantially. Enquiries are still very healthy but when consumers discover the price their enthusiasm goes down", said an executive of Dimo Lanka, the exclusive dealer and importer of Tata Motors vehicles in Sri Lanka.

Last year, when India voted against Sri Lanka, we saw import duties going up and exports (of Bajaj Auto) to Sri Lanka dropping from 20,000-22,000 per month in last quarter of last financial year to around 8,000-10,000 a month by end of first quarter of this financial year, said a report from Morgan Stanley.

Pawan Goenka, president (automotive and farm equipment service) Mahindra & Mahindra said, "Our volumes have been affected very badly because of the increase in import duty. And it has impacted a certain specific models not across the board."

Last year, India had exported vehicles worth $6 billion, out of which automobiles worth $800 million had been sold in the Sri Lankan market. (business-standard)